CA Judge Kelly Thompson Strongly Dissents. The Combs v. National City Court of Appeals decision from Jefferson County which allows banks to pay themselves Trustee Fees Retroactively

 Feb. 17, 2011

 This case sought a court ruling to allow banks and trustees to determine how to calculate compensation for trustees.

 The  decision allows banks and trustees to go back 40 to 50 years and seek fees for “extra services” which until recently a statute prohibited.   

 The Court of Appeals on Feb. 11th, 2011 issued a declaratory judgment which opens the door for trustees to bill estates additional fees retroactively.   A statute until recently limited the fees trustees could charge.  This decision opens the door for much higher fees to be charged.  The decision was ordered to be published.  Judge Thompson dissents and suggests its application should be limited only to the parties involved and that it should not be applied retroactively.

 Trustees who are usually banking institutions are also often the executor and they are allowed to draw a fee in addition to the trustees fee.    

 Court of Appeals Judge Kelly Thompson of Bowling Green strongly dissented, and challenged the majority ruling of Judges Nickell and  Clayton.

 For full text of case click case number 2009-CA-002258

 JEFFERSON  – published decision of Ct. of Appeals released on Feb. 11, 2011

 ORDER MODIFYING OPINION:

 KATHERINE COMBS JARVIS AND HUGH J. CAPERTON

 VS.

 NATIONAL CITY AND PNC

BANK NATIONAL ASSOCIATION

*** 

 2009-CA-000709-MR

 The banks argue the repeal of the statute means they are now free to charge reasonable commissions on all testamentary trusts, just as they do on inter vivos trusts. Jarvis and Caperton, beneficiaries of trusts2 established years ago, argue the commission ceilings expressed in KRS 386.180 at the time the trusts were created remain in effect.

 Plaintiffs’ primary allegation is that the banks, as trustees, have been deprived of a “reasonable commission” for their services. Until recently, KRS 386.180 governed trustee commissions and provided that testamentary trustees were entitled to an annual commission of up to 6% of the income from the trust, plus 0.3% of the value of the trust principal. In lieu of the annual principal fee, the fiduciary had the option of taking a commission not to exceed 6% of the fair value of the principal distribution at the time of termination of the trust. Under KRS 386.180, a trustee was only entitled to additional compensation for the performance of unusual or extraordinary services.

 House Bill 615 effectively repealed KRS 386.180 on July 17, 2008. In the wake of that action, there have been no rulings to determine how to calculate compensation for trustees. This Opinion may be the first on the issue.

 A trustee’s fee for overseeing a non-testamentary, or inter vivos, trust has historically not been capped.

 Trustees of inter vivos trusts retain a “reasonable fee” for their services, and Plaintiffs assert they are entitled to same.

 Defendants assert there is no justiciable issue and that under quasi-contract principles, Plaintiffs are not relieved of the obligations they knowingly accepted simply because of the repeal. Defendants’ second argument regarding quasi-contract theory is more akin to an equitable estoppel claim in that they assert the Plaintiffs should not be allowed to represent that they will receive a certain amount of compensation and then later change their position to obtain a greater fee.

 Defendants further argue that various statutes (i.e., – KRS 395.105, 386.655, 395.326, 396.610, etc.) illustrate how the legislature intended to treat testamentary trusts different from inter vivos trusts. Last, Defendant asserts that all necessary parties have not been joined in this action.

 The plain language of the repeal indicates that the legislature intended to remove any form of statutorily imposed guidelines regulating the fee habits of trustees of testamentary trusts.

 Otherwise, the legislature would have drafted and enacted a new law establishing how the fees should be calculated.

 Wherefore, IT IS HEREBY ORDERED that the motion of Plaintiffs, National City and PNC Bank National Association, for summary judgment should be and hereby is granted. The Court hereby declares that for serving as trustees of testamentary trusts, Plaintiffs may hereinafter charge a reasonable fee, generally commensurate with the fee that would be charged for similar nontestamentary trusts, and in the limited instances of testamentary trusts that are or have been subject to a termination fee, the testamentary trustees’ determination of reasonable fees may also take into consideration the fees charged or deferred, prior to the repeal of KRS 386.180, so that the total fee they receive during the administration of a trust is reasonable

 THOMPSON, JUDGE, DISSENTING: Respectfully, I dissent and express several grounds for my disagreement.

 This action was commenced pursuant to KRS 418.040. Because an action for declaratory judgment did not exist at common law, it is permitted as a result of statutory law pursuant to which a declaration of rights can only be sought where an actual controversy exists. KRS 418.040.

 To justify an action for declaratory relief there must be a real or justiciable controversy involving specific rights of the parties. HealthAmerica Corp. of Kentucky v. Humana Health Plan, Inc., Ky., 697 S.W.2d 946, 948 (1985). 

A justiciable controversy does not include questions “which may never arise or which are merely advisory, or are academic, hypothetical, incidental or remote, or which will not be decisive of any present controversy.” Dravo v. Liberty Nat’l Bank & Trust Co., Ky., 267 S.W.2d 95, 97 (1954). “A mere difference of opinion is not an actual controversy ….” Jefferson County v. Chilton, 236 Ky. 614, 33 S.W.2d 601, 605 (1930) (citations omitted). Curry v. Coyne, 992 S.W.2d 858, 860 (Ky.App. 1998).

 The sparse record lacks evidence that an actual controversy exists between the parties. There is no description or record of the probate activity and, therefore, no claim or support for the fee that the banks intend to charge, whether the banks intend to request fees retroactively, or that fees are disputed.

 Further, there is no evidence of the agreement entered into by the banks and the beneficiaries in the probate court at the time the banks accepted administration of the trusts. Thus, it cannot be determined if an actual controversy exists as to the amount of fees claimed by the banks.

Although the banks alleged an actual controversy in their complaint, the banks did not state its nature with specificity. Without service of process upon them, the beneficiaries answered the complaint admitting that an actual controversy existed. No further evidence as to the controversy was submitted.

  The first motion for summary judgment was not supported by an affidavit stating facts establishing an actual controversy and the only affidavit in the record, filed by Cynthia Maddox, vice-president and director of PNC Wealth Management, reads as a memorandum of law rather than a sworn statement of facts establishing an actual controversy. Further, the wills attached to the affidavit were not verified by a stamp in the will book at the county clerk’s office or by probate court stamp.

 My examination of the record reveals there is no actual controversy between these parties and the request for declaratory judgment is one made only to obtain an advisory opinion regarding the repeal of KRS 386.180. Essentially, the action is the equivalent of a class action litigation resulting in the opportunity for every probate trustee to apply for retroactive fees for the administration of trusts within this state. 

Although counsel for each party has high legal principles, ethics and high legal competence, I am astounded that the majority reaches such a far reaching decision based on the facts and circumstances presented. The following question dominates my thinking: Are the beneficiaries adequate representatives of every trust beneficiary in Kentucky? I ask the question because there is no indication why the beneficiaries who live in two different states but are represented by the same attorney and who were not served with process agreed to litigate the controversy.

 Because of the circumstances under which this case is before the Court, I believe it should not serve as establishing the law applicable to all trustees’ fees.

 Even if my initial conclusion that there is no actual controversy between the parties is untenable, I disagree with the majority’s conclusion that the General Assembly intended the repeal of KRS 386.180 to be retroactive. It is a basic premise of statutory construction that it is the role of the courts to effectuate the legislative intent. White v. Commonwealth, 32 S.W.3d 83 (Ky.App. 2000).

Regarding the retroactive application of legislative action, KRS 446.080(3) states:

 “No statute shall be construed to be retroactive, unless expressly so declared.”

 House Bill 615, which repealed KRS 386.180, was passed on April 15, 2008, the year the General Assembly “stopped the clock at midnight” so that a budget could be passed and no mention was made that the repeal applied retroactively during the hearing before the House or Senate Judiciary Committees.

 The silent legislative record is particularly significant because KRS 386.180 was not merely remedial in nature but it imposed substantive rights and duties upon the trustees and beneficiaries.

 Throughout the lifetimes of the three trusts involved in this litigation, the trustees’ compensation was governed by KRS 386.180. Under the statute, once the trustees made an election, the election became irrevocable. First Security National Bank v. des Cognets, 563 S.W.2d 476 (Ky.App. 1978). Yet, the majority allows the banks to recover fees for decades prior to the repeal of KRS 386.180, a direct interference with the vested rights of the beneficiaries to bind the banks to the compensation agreed to by their acceptance of their positions as trustees.

 For the reasons stated, I dissent.

LAWREADER SYNOPSIS

 

The Court hereby declares that for serving as trustees of testamentary trusts, Plaintiffs may hereinafter charge a reasonable fee, generally commensurate with the fee that would be charged for similar nontestamentary trusts, and in the limited instances of testamentary trusts that are or have been subject to a termination fee, the testamentary trustees’ determination of reasonable fees may also take into consideration the fees charged or deferred, prior to the repeal of KRS 386.180, so that the total fee they receive during the administration of a trust is reasonable.

OPINION AFFIRMING

** ** ** ** **

BEFORE: CLAYTON, NICKELL AND THOMPSON, JUDGES.

NICKELL, JUDGE: Katherine Combs Jarvis and Hugh J. Caperton appeal the award of summary judgment to National City and PNC Bank National Association.

The narrow question before the Court is whether the repeal of KRS1 386.180 in 2008, eliminating limits on the compensation charged by testamentary trustees, is effective with respect to trusts which predate the repealed statute.

The banks argue the repeal of the statute means they are now free to charge reasonable commissions on all testamentary trusts, just as they do on inter vivos trusts. Jarvis and Caperton, beneficiaries of trusts  established years ago, argue the commission ceilings expressed in KRS 386.180 at the time the trusts were created remain in effect.

In a well-reasoned and thorough opinion and order, which we adopt as our own and set forth in full, the trial court granted summary judgment to the banks. We affirm.

The Court hereby declares that for serving as trustees of testamentary trusts, Plaintiffs may hereinafter charge a reasonable fee, generally commensurate with the fee that would be charged for similar nontestamentary trusts, and in the limited instances of testamentary trusts that are or have been subject to a termination fee, the testamentary trustees’ determination of reasonable fees may also take into consideration the fees charged or deferred, prior to the repeal of KRS 386.180, so that the total fee they receive during the administration of a trust is reasonable.

The Opinion and Order of the Jefferson Circuit Court, entered on November 6, 2009, is AFFIRMED.

CLAYTON, JUDGE, CONCURS.

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